Profit Taking May Lead To Modest Pullback On Wall Street

The major U.S. index futures are currently pointing to a modestly lower open on Friday following the lackluster performance seen over the past few sessions.

Profit taking may contribute to initial weakness on Wall Street after the Nasdaq and the S&P 500 rose to new record closing highs in the previous session.

Recent consolidation efforts have not gained much traction, however, as traders seem wary of missing out on further upside.

The markets have largely maintained their upward momentum amid optimism about more fiscal stimulus and an easing of the coronavirus crisis.

An advance by shares of Disney (DIS) may also help offset any early selling pressure, with the entertainment giant climbing by 1.4 percent in pre-market trading.

Disney released its fiscal first quarter results after the close of trading on Thursday, reporting an unexpected profit on strong subscriber growth for its Disney+ streaming service.

Nonetheless, overall trading activity may be somewhat subdued, as some traders may look to get a head start on the long Presidents’ Day weekend.

After showing a lack of direction for two straight days, stocks turned in another relatively lackluster performance during trading on Thursday. Despite the choppy trading, the Nasdaq and the S&P 500 reached new record closing highs.

The Dow edged down 7.10 points or less than a tenth of a percent to 31,430.70, while the broader Nasdaq and S&P 500 closed in positive territory. The Nasdaq climbed 53.24 points or 0.4 percent to 14,025.77 and the S&P 500 rose 6.50 points or 0.2 percent to 3,916.38.

The chopping trading on Wall Street came as buying interest was somewhat subdued following recent strength, but traders also largely refrained from cashing in on the recent gains amid concerns about missing out on further upside.

Optimism about additional stimulus continued to support the markets along with largely upbeat earnings news, a slowdown in the rate of coronavirus infections and accelerated vaccine rollouts.

Nonetheless, traders have recently seemed somewhat reluctant to make substantial moves amid concerns the markets are becoming overbought.

Traders were also digesting a report from the Labor Department showing jobless claims decreased from an upwardly revised level but came in above estimates.

The Labor Department said initial jobless claims edged down to 793,000 in the week ended February 6th, a decrease of 19,000 from the previous week’s revised level of 812,000.

Economists had expected jobless claims to drop to 757,000 from the 779,000 originally reported for the previous week.

“Additional fiscal stimulus and broader vaccine diffusion will eventually allow the labor market to heal,” said Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics.

She continued, “But as the January employment data showed, current conditions are still quite weak and declines in new jobless claims are likely to occur only gradually in the near term.”

Last Friday, the Labor Department released a separate report showing a modest rebound in U.S. employment in the month of January.

Traders have recently looked for the silver lining in most major economic data, seeing upbeat data as positive for the economy and seeing weaker than expected data as putting pressure on lawmakers to pass more stimulus.

Semiconductor stocks moved sharply higher over the course of the session, driving the Philadelphia Semiconductor Index up by 3.5 percent to a new record closing high.

Considerable strength was also visible among computer hardware stocks, as reflected by the 1.9 percent jump by the NYSE Arca Computer Hardware Index. The index also reached a new record closing high.

On the other hand, oil service stocks saw substantial weakness amid a pullback by the price of crude oil. Reflecting the weakness in the oil service sector, the Philadelphia Oil Service Index tumbled by 2.9 percent on the day.

Gold stocks also showed a significant move to the downside along with the price of the precious metal, dragging the NYSE Arca Gold Bugs Index down by 2.2 percent.

Commodity, Currency Markets

Crude oil futures are slipping $0.25 to $57.99 a barrel after falling $0.44 to $58.24 a barrel on Thursday. Meanwhile, after slumping $15.90 to $1,826.80 an ounce in the previous session, gold futures are sliding $13.60 to $1,813.20 an ounce.

On the currency front, the U.S. dollar is trading at 105.09 yen versus the 104.75 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2086 compared to yesterday’s $1.2130.

Asia

Asian stocks fell in thin holiday trading on Friday as U.S. President Joe Biden’s comments on China stoked worries that relations between the two nations could sour further.

After a two-hour call with Chinese counterpart Xi Jinping on Wednesday, Biden warned lawmakers, “If we don’t get moving, they are going to eat our lunch.”

The two leaders discussed a range of issues, including human rights, trade and security, according to the White House. Both appeared at odds on most issues.

Japanese shares slipped from a 30-year high as trading resumed after a public holiday in the previous session. The Nikkei 225 Index edged down 42.86 points, or 0.1 percent, to 29,520.07, snapping a four-session winning streak. The broader Topix finished 0.2 percent higher at 1,933.88.

Shipping companies fell broadly, with Kawasaki Kisen, Nippon Yusen and Mitsui OSK Lines losing 4-5 percent. Automaker Toyota Motor rallied 3.5 percent after boosting its profit projections. Rival Honda Motor gave up 3.6 percent and Nissan Motor slumped 3.9 percent.

Tokyo Electron climbed 3.7 percent and Advantest added 3.9 percent after reports that the Biden administration is working to help address the global semiconductor chip shortage. Renesas Electronics advanced 3.4 percent after posting turnaround results.

Australian markets fell notably amid signs that Washington will continue taking a tough line on Beijing. Sentiment was also dented after authorities ordered a snap, five-day lockdown in Melbourne to contain a new coronavirus outbreak at a quarantine hotel.

The benchmark S&P/ASX 200 Index dropped 43.40 points, or 0.6 percent, to 6,806.70, while the broader All Ordinaries Index ended down 40.80 points, or 0.6 percent, at 7,081.30.

Mining heavyweights BHP and Rio Tinto fell 1.7 percent and 1.2 percent, respectively. Weaker bullion prices pulled down gold miners, with Westgold Resources plunging 7.4 percent

Woodside Petroleum, Beach Energy, Santos, Origin Energy and Oil Search lost 1-2 percent as the crude oil rally paused after eight straight sessions of gains.

Property developer Mirvac Group gave up 1.7 percent after it reported a 35 percent drop in profit for the first half of the year.

New Zealand shares fell sharply as U.S.-China tensions resurfaced and rising interest rates prompted investors to offload dividend stocks. The benchmark NZX-50 Index tumbled 171.49 points, or 1.3 percent, to 12,589.64.

Meridian Energy shares slumped 7 percent to pace the decliners. Retailer Kathmandu Holdings lost 3 percent after unveiling its half-yearly trading results.

The manufacturing sector in New Zealand climbed firmly into expansion territory in January, the latest survey from BusinessNZ showed today with a Performance of Manufacturing Index score of 57.7, up sharply from 48.7 in December.

Many markets in the region, including Hong Kong, mainland China, South Korea and Taiwan were closed for holidays. Chinese markets will reopen next Thursday, while Hong Kong markets will reopen Tuesday.

Europe

European stocks are turning in a mixed performance in cautious trading on Friday as investors react to weak U.K. GDP data and U.S. President Joe Biden’s comments on China.

After a two-hour call with Chinese counterpart Xi Jinping on Wednesday, Biden warned lawmakers, “If we don’t get moving, they are going to eat our lunch.”

The two leaders discussed a range of issues, including human rights, trade and security, according to the White House. Both appeared at odds on most issues.

While the German DAX Index is down by 0.3 percent, the U.K.’s FTSE 100 Index is up by 0.1 percent and the French CAC 40 Index is up by 0.3 percent.

Dutch bank ING Groep NV has moved sharply higher on the day after its fourth-quarter profit topped analysts’ estimates.

Semiconductor company ASML Holding NV has also shown a notable move to the upside after its fourth-quarter sales and profit beat expectations.

L’Oreal shares has also risen on brokerage upgrades after the cosmetics company posted higher-than-expected revenue growth for the fourth quarter.

Pharmaceutical company Sanofi has edged up slightly. The company said it has made a recommended all-cash offer to all the shareholders to acquire Kiadis Pharma N.V.s’ shares at an offer price of EUR 5.45 (cum dividend) in cash per share.

On the other hand, Norwegian aluminium and renewable energy company Norsk Hydro ASA has fallen after reports that around 40,000 Brazilians have filed a class-action lawsuit against the company over alleged toxic waste pollution in northern Brazil.

In economic news, official data showed the U.K. economy logged its biggest annual decrease on record in 2020, with GDP falling 9.9 percent.

U.S. Economic Reports

The University of Michigan is scheduled to release its preliminary report on consumer sentiment in the month of February at 10 am ET. The consumer sentiment index is expected to inch up to 80.8 in February from 79.0 in January.

Also at 10 am ET, New York Federal Reserve President John Williams is due to moderate a virtual discussion organized by the Economic Club of New York.

At 3 pm ET, San Francisco Federal Reserve President Mary Daly is scheduled to participate in a conversation on the economy, monetary policy and inequality before the virtual University of San Francisco Silk Speaker Series.

Stocks In Focus

Shares of SVMK Inc. (SVMK) are moving sharply lower in pre-market trading after the parent of SurveyMonkey reported better than expected fourth quarter earnings but forecast weaker than expected first quarter sales.

Consumer products company Newell Brands (NWL) may also move to the downside after reporting better than expected fourth quarter but providing disappointing guidance.

Meanwhile, share of Coherent (COHR) are soaring in pre-market trading after a report from the Wall Street Journal said electronic components maker II-VI Inc. (IIVI) plans to make a roughly $6.5 billion bid for the laser maker.

Cognex (CGNX) is also likely to see initial strength after the maker of a wide range of image-based products reported fourth quarter results that beat analyst estimates on both the top and bottom lines.